Incoming Reserve Bank chief Philip Lowe has appealed to the Turnbull government to help him out with economic management by borrowing big for infrastructure, saying there's only so much that further cuts in interest rates can do.

In what amounted to a plea to the Prime Minister and Treasurer to take advantage of near-record low interest rates and borrow now that the Reserve Bank's cash rate was close to zero at 1.5 per cent, he told a parliamentary hearing that monetary policy is "not working as effectively as it might have".

"One response is to keep doing more of it in the hope that it finally works, he said. "My judgment is that that has not been particularly useful.

"Another option is for some entity in the economy to use the low interest rates to increase its spending. The government could either use its balance sheet or its planning capacity to do infrastructure spending."

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RBA boss Philip Lowe says the reforms of the 1980s and '90s have given us a more flexible economy.Credit:Brook Mitchell

Asked whether the ratings agencies would strip Australia of its AAA credit rating if it ran up more debt, Dr Lowe said it would be important to use the funds for investment rather than recurrent spending.

"If we keep on borrowing to fund recurrent expenditure, it's going to have to be paid by our children and we start to lose our insurance against something going wrong," he said. "But that does not mean that we cannot borrow to build assets.

"That is what most businesses do; they meet their ongoing costs through their revenue flow and they borrow to build assets. So the test is: can the government, can any of us find assets to build that generate a return for society? If you can do that in a structured, disciplined, rigorous process with good governance, I am hopeful you could have a conversation with the rating agencies about that - whether you could convince them, I do not know."

He said even if the ratings agencies did withdraw Australia's AAA rating, the impact on the cost of borrowing would not be "overly material". When Britain was downgraded in June its borrowing costs actually fell, because other things were happening at the same time.

Asked whether there was a limit to how much the Turnbull government should borrow, he said the limit was finding worthwhile projects.

"Two weeks ago, the Australian government could borrow at the lowest rate since Federation," he said. "If we can develop strong business cases, just as a private business does, we can find the money."

Dr Lowe rejected the contention that the Reserve Bank's two interest rate cuts this year had sparked a new round of house price rises.

"In fact, house price growth has slowed over the course of the year, and I think that is good," he said. "As the father of three children, I do worry that people are paying so much for their housing. The solution to that, and I am going to sound like a broken record here, is housing supply and investment in transportation infrastructure."

Although Australia's terms of trade appeared to have stopped falling, from here on living standards would grow more slowly.

"From the early 1990s up to 2006 or 2007, we had annual growth in real per capita income of almost 3 per cent a year. No other Western country has had anything like that. We are not going to go back to that, but we can go back to having very respectable growth. We are going need a laser-like focus on lifting productivity growth."

Asked whether the big four banks were right to refuse to pass on all of the Reserve Bank's August interest rate cut, Dr Lowe said they had prioritised their shareholders over their borrowers in order to maintain their return on equity. Over time it would slip as new competitors ate away at their business models. "Inevitably competition comes from the new entrants," he said. "It is not likely that all of a sudden existing incumbents will decide to compete a whole lot more aggressively."

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Ahead of the parliamentary committee's grilling of bank executives due next month, Dr Lowe said he wanted banking to return to be seen as "profession of stewardship, not marketing or product-distribution."

"I do not know how to embed within a commercial bank the idea that trust is the foundation of the noble profession that we do," he said. "I wish you good luck as you pursue the issues."